COVER STORY: Impending collapse of Australian agriculture

by Patrick J. Byrne

News Weekly, May 16, 2009

Australia's food security is threatened less by the drought than by long-term falling farm profits. Patrick J. Byrne reports.

Around the year 2000, Queensland University of Technology economist, Dr Mark McGovern, presented to farmer forums figures showing the declining value of net farm production, i.e., the total sum of all the profits of Australian farmers. (See latest version of these figures on News Weekly's front cover and below. Source: Australian Commodities, ABARE Canberra, 2007).

Dr McGovern then warned that Australian Bureau of Agricultural and Resource Economics (ABARE) figures showed that farm incomes would approach zero by about 2017.

He said that he received widespread coverage and responses. "A number of industry leaders and government politicians were clearly aware of it. At a conference near the Murray I discussed the issue at length with a leading rural reporter.

"A feeling of 'impotence before the inevitable' probably sums up many reactions. I remember one grazier's daughter saying that it had helped them decide to sell up. Others mentioned it had helped put things in a broader perspective, but what could they do?"

Downward trend

Of late, Dr McGovern has discussed the downward trend of farm profits with relevant government agencies, but, he says, there appears to be no communication of the seriousness of the crisis to the relevant government ministers.

Nations should specialise in their high-productivity industries. For Australia, agriculture is the nation's third highest productivity sector. (Productivity measures productive efficiency, broadly calculated as output per unit of investment).

Recently, the Agriculture Minister, Tony Burke, warned farmers of the decline in Australia's farm productivity, which could jeopardise its international competitiveness. He urged farmers to lift investment in agriculture and so lift productivity.

But how can farmers lift their investment and productivity after years of failed policies continue to cut farm profits to unsustainable levels?

Many leading farmers, the innovative drivers of productivity, have already left agriculture.

One leading wheat farmer, who holds several industry patents, recently told News Weekly, "I've sold my farm and got out of agriculture. There's no return on investment."

Politicians have been quick to blame the drought, but the figures show the decline was well underway 20 years before the drought.

Then they blame the US, EU and Japan for blocking World Trade Organisation attempts to open up their markets to Australian farmers. These nations may preach free trade, but they are never going to practise it because they regard agriculture as a strategic industry.

Then they argue that agriculture is not doing it so bad, arguing that Australia feeds 60-80 million people because it exports 60-80 per cent of its agriculture. The implication is that it doesn't matter if the country loses, say, one-third of its farmers, because the nation will still be able to feed the nation's 21 million people.

These attitudes derive from a quarter of a century of failed rural policy that has been built on a fallacy.

In recent years, Australia exported around $14-16 billion in food and beverages annually (ABS 5368: tables 31 and 33). Even when fibre (e.g., wool and cotton) is included, this could not possibly represent 60-80 per cent of Australian agricultural product.

The Australian economy is worth around $1,100 billion annually. The definitive study on the value of farm production, Australia's Farm-Dependent Economy (Australian Farm Institute, March 2005), showed that, at the farm-gate, agriculture is worth 3.2 per cent of the economy. Then, when its related input and output industries are included, it is worth 12.2 per cent or, in current terms, about $120 billion. It employs about 17.2 per cent of the workforce.

Therefore, at best in a normal season, Australian agricultural raw and processed product exports are worth about 25-30 per cent of agriculture.

This broadly confirms the joint statement in 2000 issued by Dr McGovern, his academic referees, leading Australian Bureau of Statistics officials and members of the Queensland National Party's Production Destination Committee.

Known as the Customs House Agreement, it analysed the value of exports to agriculture and concluded that: 1) "direct exports and the first round roughly accounted for about 25 per cent of exports"; 2) that "the ABARE and NFF (80 per cent) export figure has no basis of fact"; and 3) it "stressed that the findings of Dr McGovern's research were self-evident".

Given the rate of decline in farm profits and viability, Australia is facing a collapse in agriculture, which threatens to turn the nation into a net food importer. Australia's food security is at risk.

To prevent this outcome, a major review of the policies crippling agriculture — national competition policy, trade, water, trade practices and quarantine policies — is urgently needed.